SBA Communications Corp

NASDAQ:SBAC

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to SBA's First quarter results conference. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Vice President of Finance, Mark DeRussy. Please go ahead.

[Mark DeRussy, VP, Finance]

Good evening, and thank you for joining us for SBA's first quarter 2020 earnings conference call. Here with me today are Jeff Stoops, our President and Chief Executive Officer; and Brendan Cavanagh, our Chief Financial Officer.

Some of the information we'll discuss on this call is forward looking, including, but not limited to, any guidance for 2020 and beyond. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, May 5, and we have no obligation to update any forward-looking statement we may make.

In addition, our comments will include non-GAAP financial measures and other key operating metrics. The reconciliation of and other information regarding these items can be found in our supplemental financial data package, which is located on the landing page of our Investor Relations website.

With that, I will now turn the call over to Brendan.

[Brendan Cavanagh, EVP & CFO]

Thank you, Mark. Good evening. Well, SBA had another solid quarter operationally and financially. And given the unprecedented events occurring around the globe, we feel both pleased and fortunate to be able to report our results.

Total GAAP site leasing revenues for the first quarter were $492.3 million, and cash site leasing revenues were $490 million. Foreign exchange rates were a $2.7 million headwind to revenues when compared with our internal estimates for the first quarter. They were also a headwind on comparisons to the first quarter of 2019.

Same-tower recurring cash leasing revenue growth for the first quarter, which is calculated on a constant currency basis, was 5.6% over the first quarter of 2019, including the impact of 2.2% of churn. On a gross basis, same-tower growth was 7.8%. Domestic same-tower recurring cash leasing revenue growth over the first quarter of last year was 7.6% on a gross basis and 5.1% on a net basis, including 2.1% of churn, 0.7% of which was related to Metro/Leap and Clearwire terminations. Domestic operational leasing activity, representing new revenue placed under contract during the first quarter, was slower than the year ago period and similar to the fourth quarter of 2019 due to T-Mobile, Sprint and DISH, awaiting resolution of the legal challenges to the Sprint/T-Mobile merger and the ultimate closing of the merger.

Amendment activity was again, the large majority of our domestic bookings with newly signed up domestic leasing revenue coming 84% from amendments and 16% from new leases. Despite the lack of contribution from T-Mobile and Sprint, the big 4 carriers, now big 3 carriers still represented 79% of total incremental domestic leasing revenue signed up during the quarter. We did have some nice contributions to domestic leasing activity from a couple of regional carriers.

Our domestic application backlog remains strong, and we expect that with the closing of the Sprint/T-Mobile merger now behind us, we will soon begin to see a significant increase in incremental leasing activity. Early activity post-merger has finally begun.

Internationally, on a constant currency basis, same-tower cash leasing revenue growth was 8.1%, including 0.5% of churn or 8.6% on a gross basis. Leasing activity internationally was largely in line with expectations for the quarter. This quarter, Brazil was again the largest contributor to international lease-up, and we continue to see contributions from all 4 major carriers there.

Gross same-tower organic growth in Brazil was 10.8% on a constant currency basis. During the first quarter, 84.1% of consolidated cash site leasing revenue was denominated in U.S. dollars. The majority of non-U.S. dollar-denominated revenue was from Brazil, with Brazil representing 12.8% of all cash site leasing revenues during the quarter and 9.6% of cash site leasing revenue, excluding revenues from pass-through expenses. Tower cash flow for the first quarter was $398.1 million. Our industry-leading domestic tower cash flow margin was 84.2% in the quarter. International tower cash flow margin was 70.4% and was 90.5%, excluding the impact of pass-through reimbursable expenses.

Adjusted EBITDA in the first quarter was $369.9 million. Our industry-leading adjusted EBITDA margin was 71.9% in the quarter up 150 basis points from the prior year period. Excluding the impact of revenues from pass-through expenses, adjusted EBITDA margin was 76.7%. Approximately 99% of our total adjusted EBITDA was attributable to our tower leasing business in the first quarter. Our first quarter tower cash flow margin and adjusted EBITDA margin were both record highs for SBA. AFFO in the first quarter was $259.9 million. AFFO per share was $2.28, an increase of 10.1% over the first quarter of 2019 and a 13.5% increase on a constant currency basis.

During the first quarter, we continued to invest in expanding our tower portfolio, acquiring 69 communication sites for $79.9 million and building a total of 49 sites in the quarter. Subsequent to quarter end, we have purchased or agreed to purchase 137 additional sites at an aggregate price of $52 million, which sites we anticipate closing by the end of the third quarter. We also continue to invest in the land under our sites, which provides both strategic and financial benefits. During the quarter, we spent an aggregate of $6.9 million to buy land and easements and to extend ground lease terms. At the end of the quarter, we owned or controlled for more than 20 years, the land underneath approximately 70% of our towers, and the average remaining life under our ground leases, including renewal options under our control, is approximately 35 years.

In our earnings press release this afternoon, we included an update to our outlook for full year 2020. The most material changes to our outlook are the result of significant changes in foreign currency exchange rates since we initially provided our 2020 outlook. The weakening of the Brazilian real, South African rand and Canadian dollar relative to the U.S. dollar, have caused us to revise our estimates for these currency exchange rates for the balance of 2020.

The combination of these estimate changes and the actual first quarter exchange rates relative to our prior assumptions, have negatively impacted our outlook for site leasing revenue by $47 million. Tower cash flow, adjusted EBITDA and AFFO were negatively impacted by $32 million, $30 million and $29 million, respectively, due to these updated exchange rate assumptions. AFFO per share was negatively impacted by approximately $0.26. Excluding the impact of these foreign currency-related adjustments, we raised our full year outlook for leasing revenue, tower cash flow and AFFO per share. Even with the T-Mobile-Sprint merger-related overall industry slowdown in the U.S. in the second half of last year and year-to-date this year, we still anticipate another year of solid growth in our leasing business. Although primarily concentrated in the second half of this year. We raised our full year domestic leasing revenue expectations, although we have made a minor reduction to the anticipated contribution from new leasing activity, both domestically and internationally, due primarily to a conservative view around the possible impacts from the COVID-19 pandemic.

While these are immaterial changes, and we haven't seen any material delays to date, it is impossible today to say with certainty that there will not be some minor impact from COVID-19 somewhere in our business this year.

Similarly, with regard to our services business, we have lowered our full year revenue outlook largely due to potential impacts from COVID-19 and slower activity levels in the first half of the year, pending the expected lift from T-Mobile post-merger. Our full year outlook still contemplates a pickup in our leasing and services businesses in the second half of the year, particularly now that the Sprint/ T-Mobile merger has closed. Our customers have a ton to do, and it is apparent to us in our backlogs, and in our discussions with them. As a result, we remain excited about not only 2020, but the next several years of activity.

I'll now turn things over to Mark, who will provide an update on our liquidity position and balance sheet.

[Mark DeRussy, VP, Finance]

Thanks, Brendan. We ended the first quarter with $10.7 billion of total debt and $10.4 billion of net debt. Our net debt to annualized adjusted EBITDA leverage ratio was 7.0x, down 1/10th of a turn since last quarter. Our first quarter net cash interest coverage ratio, of adjusted EBITDA to net cash interest expense was 3.9x, which was up 1/10th of a turn since last quarter.

On February 4, we issued $1 billion of new 7-year unsecured senior notes at an interest rate of 3.875%. The proceeds of which were used to redeem all of our outstanding 2002, 4.875% senior notes, pay the associated call premium on those notes and repay a portion of the balance outstanding under our revolving credit facility. As of today, the outstanding balance under our revolver is $380 million. The weighted average coupon of our outstanding debt is 3.6% and our weighted average maturity is approximately 4 years.

During the first quarter, we repurchased 824,000 shares of our common stock for $200 million or an average price of $242.86 per share. All shares repurchased were retired. As of today, we have $424.3 million of repurchase authorization remaining under our $1 billion stock repurchase plan. The company's shares outstanding as of March 31, 2020, are $111.6 million compared to $113.2 million at March 31, 2019, a reduction of 1.5%.

In addition, during the first quarter, we declared and paid a cash dividend of $52.2 million or $0.465 per share. And today, we announced that our Board of Directors declared an equivalent second quarter dividend of $0.465 per share, payable on June 18, 2020, to shareholders of record as of the close of business on May 28, 2020.

With that, I'll now turn the call over to Jeff.

[Jeffrey Stoops, President, CEO & Director]

Thanks, Mark, and good evening, everyone. The first quarter was a solid start to the year financially and operationally for SBA. We produced leasing revenue, TCF and AFFO per share that were all well ahead of our expectations. Our domestic and international TCF margins as well as our adjusted EBITDA margin for the quarter were the highest in our company's history, and our AFFO per share growth on a constant currency basis of 13.5% over the first quarter of last year is evidence of the tremendous growth characteristics of our business, a very resilient predictable business. The solid growth gives us great confidence in continuing to invest in our business while paying out one of the fastest-growing dividends anywhere. We announced today our second quarterly dividend of the year at an annual -- excuse me, at an amount of 26% over our quarterly dividend paid in the second half of last year.

During the quarter, we were active both adding assets to our portfolio and repurchasing our stock. We invested over $100 million in new assets and repurchased $200 million of our stock. We were once again opportunistic in our share repurchase efforts, buying stock at an average price of $242.86.

While all of that certainly sounds great, our thoughts these days are largely consumed by COVID-19. The global impact of the COVID-19 pandemic has been dramatic. We've all been affected in some way, including SBA. Our hearts go out to those that have lost loved ones or had health complications due to this virus. And we have also concern for those who have lost jobs or faced economic hardships due to the far-reaching shutdowns undertaken in response to the virus. Thankfully, we have only had a handful of team members test positive, which we're very fortunate for with the global workforce of almost 1,500 team members. And thankfully, they're all doing okay.

Prior to the COVID-19 crisis, SBA was not a telecommuting company. We learned to become a telecommuting company in 14 countries in less than a week. For those of our team members in essential jobs where they could not work from home, including all of our services team members working for our customers every day, we developed state of the art health and safety protocols with the constant assistance of medical professionals. I don't feel we've missed a beat, and I salute all of our team members for their dedication, service and commitment.

At SBA, we recognize both that we are fortunate to be in an industry that has proven resilient to the challenges of the current environment and that we have an obligation to support the communities in which we live and work. One thing that has become abundant and clear during this crisis is the tremendous importance of broadband and wireless connectivity, a cornerstone to the continued functioning of much of our society during this time of social distancing.

In recognition of this, we have supported our customers and their efforts to address the needs of our communities. Our tower crews have been on the front lines, installing equipment, checking equipment, performing maintenance and repairs, checking and resetting power systems and performing other site level tasks, not normally within SBA scope. We've ensured uninterrupted access to sites for authorized personnel 7 days a week, 24 hours a day.

In many of our international markets, we've made cell on wheel solutions available to our customers at no charge. We've also accelerated payments to certain of our vendors facing hardships. We are busy. All of our team members remain fully employed, and we have recently added some employees in anticipation of a more active second half.

Finally, SBA has committed material financial resources to support charitable organizations in each of the domestic and international markets where we have offices. We believe it is important to support the communities where our team members live, work and raise their families. And we feel fortunate that we are able to do it. From a financial standpoint, our business continues to be strong during these challenging times. The impacts to our core business from COVID-19 have been minor, a few delays here and there. The only material negative impact we currently expect to our financial projections, as you heard from Brendan, is due to weaker foreign exchange rates in our largest international markets. We are hopeful that these rates will improve when the current crisis has eased. But for now, we continue to keep local cash flows in local markets supporting local operations, so there will be no impact to our day-to-day operations in those countries.

The bottom line is the future is very bright for SBA. In fact, as you heard from Brendan, but for foreign exchange adjustments, we would have been increasing our full year outlook in a number of important areas, including AFFO per share. We are financially healthy, well positioned in critical business and there are a number of growth drivers ahead of us.

One of those growth drivers is, of course, the new T-Mobile. With the closing of the T-Mobile/Sprint transaction now behind us, we are on the cusp of significant network investment by all of our U.S. customers. In order to meet their required 5G coverage goals, the new T-Mobile will require meaningful upgrades across their combined portfolio, deploying both 2.5 gigahertz spectrum and 600 megahertz spectrum. Post-merger discussions and early activity are underway.

Verizon and AT&T are each active in upgrades and network expansion for both 4G and 5G as well. In addition, AT&T's FirstNet build out continues in full swing and deployments of AWS 3 and WCS spectrum continue. We anticipate that both the CBRS and C-band spectrum auction scheduled for later this year will be highly competitive, and ultimately, a material driver of incremental growth for the tower industry, particularly the C-band auction. This critical mid-band spectrum is expected to be a key component of future 5G network deployments, and it will require the deployment of new equipment at many of our customers' existing macro sites.

On top of all this, DISH will be active investing heavily to meet their own 5G coverage commitments as they begin the build-out of a brand-new nationwide facilities-based wireless network. These major initiatives will all support continued growth for SBA for at least the next several years.

Internationally, we expect our business to remain steady. While some of our customers outside the U.S. may feel the impact of COVID-19 more than those in the U.S., at least in the short term, due to government-imposed consumer payment deferrals, the reason those deferrals were implemented in the first place is that wireless is and will remain the primary means of communications in these markets. Expanded wireless services capability and reliability required by the market and perhaps regulatory authority, are expected in these markets. Our current levels of activity and backlogs are very good, and absent some material change from this point forward, we anticipate a solid 2020 internationally.

From a balance sheet perspective, we remain very strong as well. We have plenty of liquidity and good access to incremental capital if needed. We remain a preferred issuer in each of the markets where we access capital, and that is even more the case in the current environment. I'm very comfortable with our current leverage level, and the strength of our balance sheet provides us with flexibility to continue to be opportunistic around investment opportunities and share repurchases, while still being able to comfortably support our dividend.

Our dividend remains at a relatively low percentage of AFFO, providing us with great capital allocation opportunities. Our asset focus remains unchanged, whether macro towers, mobile edge, in building or other assets, we seek out exclusive multi-tenant mission-critical assets that will be essential for the needs of our customers today and tomorrow and will provide returns to SBA materially above our cost of capital. We are very focused on and pleased with our return on invested capital. Strength of our financial position shines through in times like these.

Finally, I'd like to again thank our team members and our customers for their contributions to our success. We are all in this together. As I mentioned earlier, I could not be more proud of the way that the SBA team has come together in these challenging times, and performed at a very high level. With their continued contributions, I look forward to a solid and improving rest of the year. We have adjusted well and will continue to adjust well to the times, and we remain laser-focused on serving our customers and providing increasing returns to our shareholders.

Rich, with that, we are now ready for questions.

[Operator]

[Operator Instructions]. And we will start with the line of David Barden with Bank of America. Please go ahead.

[David Barden, Bank of America Merrill Lynch]

So it's good to hear that the team is functioning so well in these tough times. I think, Jeff, you guys have had special relationship with DISH in terms of their network build initiatives thus far. They recently announced the first RFP vendor, Mavenir, an OpenRAN company that's going to be kind of the glue that will be kind of pulling their network together.

I was wondering if you could kind of elaborate a little bit as you think about your guidance for the year. How dependent it is and how confident you are in DISH's plans for deploying some kind of physical services based network and kind of your conviction that they're for real when it comes to the business? I mean it's super helpful to get your views on that.

[Jeffrey Stoops, President, CEO & Director]

Well, thanks, David. I hope you are well, you and your family. We know DISH is for real. They are extremely committed to this undertaking. There's a tremendous amount at stake and at-risk for Mr. Ergen and his shareholders, if they are not successful and they are certainly pursuing it in every way, shape and form to our visibility to be successful. We're very, very, very involved with them in all kinds of conversations. Recall from their prior disclosures that they expect this year to be a very, very big planning year with deployments really to commence next year.

So based on those comments, we have not included virtually anything in our leasing guidance and perhaps very little in our services guidance, but that does not mean that work relationships are not quite good and quite voluminous between the companies. And I wouldn't bet against him.

[David Barden, Bank of America Merrill Lynch]

Jeff, if I could have a quick follow-up, would just be -- you've called out Sprint/ T-Mobile being a big part of the landscape in the coming 6 months, which I think we all expect. I guess some of us were surprised to see that they really jumped out of the gates with the Philadelphia 2.5 gigahertz launch announcing the New York market is going to be next. Is there something about the Sprint/T-Mobile merger deployment schedule that seems faster than expected? Or is it kind of what you were anticipating?

[Jeffrey Stoops, President, CEO & Director]

We really didn't know. But now we have a lot greater visibility. And I think what we're seeing is that based on where both companies were, particularly with Sprint with their already somewhat deployed 2.5 G that will be the markets that T-Mobile will quickly gravitate to launch first because it's logical, and it just makes sense. So I don't know that there's any surprises there as much, David, as there is now starting to be some clarity.

[Operator]

We'll next go to the line of Ric Prentiss with Raymond James.

[Richard Prentiss, Raymond James & Associates]

Glad to hear you, your families and employees are doing well, hope that continues. First, also a shout out for a very well-timed opportunistic stock buyback, again, always good to see. You mentioned that the services business would be down $20 million view to view on your guidance because of impact from COVID-19 and maybe a slower first half activity with the Sprint/T-Mobile merger. Is that -- and again, it might not happen, you haven't seen anything so far, I think you said but is that really thinking about what zoning permitting and the ability to get folks onto the site might be?

[Jeffrey Stoops, President, CEO & Director]

I think what we're experiencing so far, and again, none of it is COVID -- well, it is COVID-related, but none of it's material. Everything just seems to take a little bit longer. And when we talk about basically doubling the size of the industry's work with the T-Mobile stuff getting really cranked up, just hard for us to just think that there's not going to be some COVID-19 slowdowns. I can't name them all today, but it's just -- there has to be, right? So -- and the rest of the services thing was -- I mean if you look at our first quarter numbers, and it's going to be the same in the first -- in the second quarter, it's was somewhat behind where we thought it was going to be.

[Richard Prentiss, Raymond James & Associates]

Okay. And as you think about the guidance for the year, the increasing operational activity. Do you need an MLA in place to capture some of that services and leasing growth? And how long would new MLAs take, given how complicated some of this work might be?

[Brendan Cavanagh, EVP & CFO]

Well, we have MLAs in place with both T-Mobile and Sprint, which continue to be in place. Now I don't know that they're entirely perfect or totally all covering the things that now need to be covered, but they do cover quite a bit. So the answer is no. We don't need any of that to do the things that we've reflected in our outlook.

[Richard Prentiss, Raymond James & Associates]

And how long would it take to update MLAs? Is that a matter of months, quarters?

[Brendan Cavanagh, EVP & CFO]

Well, it could be done a lot quicker than that. Yes, I would certainly think it would be months and not quarters.

[Operator]

We'll next go to the line of Spencer Kurn with New Street Research.

[Spencer Kurn, New Street Research]

I'm glad the organization is all seems to be pretty well and healthy. Just a question on organic growth. Your full year guidance is below where you are -- where you reported in the U.S. today. But it sounds like you're expecting a pretty big uplift later in the year. So could you just help us understand the cadence as we move throughout the year? Do you expect the second quarter to be the trough and gradually improving from there? And I don't know if you want to give us some more granularity, but if you could help us understand the exit rate that you're expecting moving into 2021, that would be very helpful.

[Jeffrey Stoops, President, CEO & Director]

Yes, I'm going to give some high-level comments, and I'm going to let Brendan give you some more detail. I mean, recall, Spencer, the way we report that metric, it's a trailing 12 and when Sprint/T-Mobile DISH pulled back, it was like August, September. So you had -- from September on, you had very reduced activity. You had it again in -- you had nothing basically from those guys in Q1. And you won't have really anything from them in Q2. So there's 3 quarters right there that do the kind of -- run the mental mathematical gyrations, and you'll see where things should trough out and then where they should begin to pick up again. So Brendan, do you want to hazard a guess as to exit rates? I'm not sure we want to do that.

[Brendan Cavanagh, EVP & CFO]

Yes. No, I don't think so. I mean, I think you've already suggested spencer that you've calculated based on the revenue bridge and our supplemental package, what the full year number is. And if you're looking at it domestically, that number is lower than what we reported for the first quarter. And that's because you will see a lot of the impact that Jeff was just talking about that's happening in the first quarter and into the second quarter, it will continue to drive a trailing 12 months number down, even though we expect activity levels from a leasing standpoint to pick up in the second half of the year, the financial impact of that will not be felt until we get to next year. So I think you should assume that the exit rate is somewhere around what we have projected there for the full year, maybe slightly below that, actually, but accelerating from that point forward would be our expectation.

[Spencer Kurn, New Street Research]

And then just on that same topic, you still got about 70 basis points of churn from MetroPCS, LEAP and Clearwire. When should we expect that to roll off? Does that happen later in the year?

[Brendan Cavanagh, EVP & CFO]

Yes. You should expect that it will continue to decline, because that's, again, a trailing 12-month number as well. So it will continue to step down because there's not that much left. We've probably got about $4 million or so of annualized revenue from them that we expect to churn off over the next few quarters, I'd say. So it's stepping down already. So that percentage will be lower by the end of the year.

[Operator]

We'll next go to the line of Simon Flannery.

[Simon Flannery, Morgan Stanley]

Good to hear everybody is doing okay. You mentioned the CBRS and C-band auctions. Can you just elaborate a little bit more on the opportunity for macro towers with CBRS? Are you talking to some carriers that may deploy that in a macro environment? Or is it -- do you think it's mostly small cells? And then you also commented on some decent activity by regional carriers. Is that something that you're seeing being sustained? Or is that more of a kind of a short-term boost there?

[Jeffrey Stoops, President, CEO & Director]

Well, when we didn't really have anything from T-Mobile and Sprint, it mathematically made up a better percentage of the quarterly pie, Simon, than it typically would. Now I do think there will be some continued activity from those carriers, but I do think it will also decline just because of the law of larger numbers as you see more of the T-Mobile activity come in through the year.

CBRS, I think, is primarily going to be mostly at in-building phenomena, but we are having some conversations with not only traditional wireless providers, but also cable companies about macro installations. But as between the 2 auctions, CBRS versus C-band, I think it's without question going to be a more exciting and more activity producing auction for us with respect to the C band.

[Operator]

We'll now go the line of Philip Cusick with JPMorgan.

[Philip Cusick, JPMorgan Chase & Co.]

I wanted to ask how much visibility you really have into that services revenue, around the implication is that you're confident that Sprint/T-Mobile is going to be asking you to do a lot of work for them. Can you dig more into what that work will entail? And is that typical of your relationship with Sprint or T-Mobile in the past?

[Jeffrey Stoops, President, CEO & Director]

It's typical of both, and it does imply that we do the work on our own towers when it comes to amendments or co-locations.

[Philip Cusick, JPMorgan Chase & Co.]

Is that sort of a standard thing that would happen? Or is this a contract that's already been signed already?

[Jeffrey Stoops, President, CEO & Director]

It's kind of historical relationships and some contracted relationships as well.

[Philip Cusick, JPMorgan Chase & Co.]

Understood. And would you frame your thinking on the price of amendments that T-Mobile may be needing versus the average level as they do the work?

[Jeffrey Stoops, President, CEO & Director]

No. That would not be a good thing for me to do, Phil.

[Operator]

We'll now go to the line of Walter Piecyk with LightShed.

[Walter Piecyk, LightShed Partners]

I guess you called new leasing activity, the 7.6% growth number, Jeff, that actually, based on how we -- I guess we do our math, seems like it didn't drop that much relative to kind of the lack of activity we've been talking about for the last 6 to 9 months. Are you still expecting only, I think, what was the last guidance, $49 million of new lease activity in 2020? Because it seems like -- I mean I think there's some differences in how we do our math versus you, but it seems like your rate would be higher than that for the year. Even if it drops a little bit in the June quarter, if it builds in the September, December quarter based on TMO activity, that you can do better than that, the 49 that I think you talked about in February.

[Brendan Cavanagh, EVP & CFO]

Well, we actually reduced that number slightly to 47, Walt, in the...

[Walter Piecyk, LightShed Partners]

Sorry, I didn't see Joe's notation here. You're right. He has one [indiscernible] of -- yes, so even more so than, like how is it going to be 47 when you started the year at a 7.6% growth rate based on that 3.37% number last year, that's like a 14, 15 a quarter.

[Brendan Cavanagh, EVP & CFO]

Yes. But we -- if you look at that, obviously, it implies that, that number goes down. And again, that's trailing 12 months. So if you calculate it out for the balance of the year, we're expecting that 7.6% to be lower in future quarters. And it is lower than it was -- that is a step down. In the fourth quarter, that gross number was 8.2%, and I think the quarter before that was 8.6%. So it's stepping down basically based on what we've seen since mid third quarter last year, which was kind of a stop by T-Mobile, in particular.

[Walter Piecyk, LightShed Partners]

So aside from law of large numbers and everything else, though, let's say, it steps down next quarter, whatever, $10 million. But by the September and December quarter, you should be executing on the activity that T-Mobile is delivering to you today, right? So again, I think it's -- it feels like it's hard to get to only 47 for the year.

[Jeffrey Stoops, President, CEO & Director]

Well, recall that's a financial -- recall that's a financial number, not an operational number. So operationally, we expect to be extremely busy but those are -- go ahead, Brendan.

[Brendan Cavanagh, EVP & CFO]

Yes. I mean, where Jeff is going, they don't commence until later. You said in the third and fourth quarter. But we're just now starting to have activity pick back up with them. We've not been signing anything with T-Mobile basically year-to-date, including going back a quarter and a half of last year. So all the things that start to happen now, even if we become very busy from this point forward and you layer on a commencement date to that, that's typically several months after it's signed up. It's very limiting in its impact for this year. But we do it--.

[Walter Piecyk, LightShed Partners]

That's very helpful because it's interesting because T-Mobile talks about trying to get that 2.5 on their towers in time for the 5G launch of the iPhone. So if they're just kind of giving the stuff to you now and the activity is not going to hit until 2021, there seems to be maybe a bit of a disconnect there. In terms of what they're communicating, right?

[Brendan Cavanagh, EVP & CFO]

I mean, listen, it could be. They could be more aggressive and faster than what it's historically been, but we're not projecting that because we don't have that -- any evidence of that at this point in terms of a timing.

[Jeffrey Stoops, President, CEO & Director]

Yes. Well, it is starting. It could go quick. Sprint did have -- I won't say a fair amount, but they do have some 2.5G out there already. I don't know if it's enough. It's certainly not enough to cover a nationwide iPhone launch. But I mean it -- I think the main thing to keep in mind, Walt, is the numbers that you read are financial -- they come off the financials. But when we talk about pickups and activity, that's the stuff, that's the signing and the dirt being turned and things like that. And the financial results trail all that stuff.

[Walter Piecyk, LightShed Partners]

So if you book $1 million of new lease activity in Q1 of 2021, what does that mean in terms of when that site has been turned on for a user for the operator?

[Brendan Cavanagh, EVP & CFO]

We sign a $1 million...

[Walter Piecyk, LightShed Partners]

No, no, no what I'm saying is revenue hit your new lease activity. That means that you ramped on that probably means they turn it on right. Do they turn on that quarter? Or do they turned it on the prior quarter?

[Brendan Cavanagh, EVP & CFO]

It usually commences paying once they've installed and turned it on usually when they usually sync up. It doesn't always work that way. It could be that they are paying earlier because there's a drop-dead date. But typically, those 2 things align.

[Operator]

We'll go to the line of Nick Del Deo with MoffettNathanson.

[Nick Del Deo, MoffettNathanson]

First, I think you target 5% to 10% annual portfolio growth. How do you feel about achieving that target given the number of towers you've acquired to date, have under contract and what you see in the market?

[Jeffrey Stoops, President, CEO & Director]

Well, we got a lot to do. We exceeded -- got close to 10% at the end of last year. So we've kind of started off with some lower levels of activity. And you could see where those numbers are now. There's plenty of stuff out there, Nick, and that continues to be our goal. I don't think we will repeat last year's percentage levels, which I believe were close to 10%. But we're still shooting for at least the 5%, and there's enough out there to be done. But like we always do, we want the right assets.

[Nick Del Deo, MoffettNathanson]

Okay. Okay. That's good to hear. And then land purchases were down quite a bit versus the normal pace. Is that just a function of legal work getting gummed up because of lockdown?

[Jeffrey Stoops, President, CEO & Director]

That is one, probably more visible aspect of COVID-19 than perhaps -- that new builds, I mean, a lot of the land purchase things require notorization. Well, you can't leave your house, you can't get things notarized. So that's a very tangible area of the business that has seen some delays. And just to add in. Internationally, most of those deals require an in-person negotiation with the landowners, and that obviously is being limited as well. So it definitely is having an impact.

[Brendan Cavanagh, EVP & CFO]

Now we also think that there will be some more willing sellers.

[Nick Del Deo, MoffettNathanson]

That was actually my follow-up question, yes.

[Jeffrey Stoops, President, CEO & Director]

Yes. Yes. Yes. So we think there will be some balance there over the course of the year.

[Operator]

We'll now go to the line of Michael Rollins with Citi.

[Michael Rollins, Citigroup]

Just two questions, if I could. The first, is spectrum borrowing continues and turns into commercial rentals can you unpack if SBA has monetization opportunities associated with that? And then secondly, any new thoughts on how to try to manage the foreign currency volatility that you've been ingesting in the financials?

[Jeffrey Stoops, President, CEO & Director]

Yes. Our leases are spectrum specific, Mike. But given why that spectrum is going to be provided in times of a national emergency and to be used to help us all get through this. Provided that's what it's being used for, and it goes back at some point. I don't know that we're going to charge for that. Now if it requires additional equipment to be utilized in new radios and new antennas. But if it's just to help people get through, and there's no new equipment required, even though we could charge for it, we're probably not going to charge for that.

In terms of foreign currency, we have spent many sleepless nights looking for P&L hedges, but they are -- they are cost prohibitive. The only real hedges that work are when you are purchasing an asset in advance, you can hedge your dollars going in. And then the other hedges to borrow in local currency. But in terms of what I think you're talking about looking for to purchase a P&L hedge, there is not one out there that is -- makes cost sense.

[Brendan Cavanagh, EVP & CFO]

We do try to -- at this time, there's limited repatriation of money, and we are -- where we see opportunities trying to invest the cash flows that are being generated in these markets back into those markets. So with that, it's not really costing us at this point. It certainly is costing us in terms of what we report. But as Jeff said, it's somewhat cost prohibitive for what is basically fixing a paper loss right now.

[Michael Rollins, Citigroup]

And has that performance over the last few years in FX changed the way you approach international acquisitions in terms of hurdle rates or the types of assumptions that you're layering into the models?

[Jeffrey Stoops, President, CEO & Director]

Yes. We continue to adopt increasingly higher foreign exchange hurdles as part of our modeling components.

[Operator]

We'll now go to the line of Colby Synesael with Cowen.

[Colby Synesael, Cowen and Company]

I'm glad everybody is doing well. First off, on the guidance, you mentioned that excluding the FX headwind, you actually would have increased your guidance, but you did mention that you had taken down your expectations for new leasing activity. I was just curious if you could explain where that would have been. And then secondly, on churn, I think going into 2020, the expectation in the United States was that churn would be elevated because of non big 3 elevated churn? Just curious if that number or assumption has changed.

[Brendan Cavanagh, EVP & CFO]

Yes, Colby, on the guidance changes, so net of the FX, there is an increase to several of our metrics that we guide to, including leasing revenue. And the organic lease-up we did reduce slightly. The increases as a result of some of the other things, particularly in the first quarter, we had a strong out-performance in a variety of things, including certain onetime fees, and out-of-period billings, those sorts of things that were higher than expected. So that allowed us to increase the guidance for the full year, net of it.

[Colby Synesael, Cowen and Company]

And those things that will offset in the second quarter that we should be thinking about when we model? Or are they things that will recur again?

[Brendan Cavanagh, EVP & CFO]

No. I mean we always have some of that stuff every quarter. And so one of the challenges is certainly for us to pinpoint exactly what it's going to be because it's not the typical recurring monthly payments that we get under the leases, which is the majority of our revenue. But there will be some amount of it, whether our assumptions in the first quarter were a little bit low, and it continues a little bit higher or that's the new normal, I don't know yet. But I think if you're modeling it out and you keep it in the same ballpark as what we saw in the first quarter, you'd be okay.

And then on the churn side, there wasn't really a material shift in the non-big 3 churn from what we talked about last quarter. In fact, our reported numbers, I think, quarter-over-quarter were very similar. They were flat.

[Colby Synesael, Cowen and Company]

So churn of roughly around, I think, 2%. Is that the number? I can't recall right now.

[Brendan Cavanagh, EVP & CFO]

Yes. For the U.S., 2020 would be somewhere around 2%.

[Operator]

We'll go to the line of Sami Badri with Crédit Suisse.

[Sami Badri, Crédit Suisse]

Jeff, you've mentioned on prior earnings calls regarding M&A activity and potentially entertaining other deals in other regions. Now there have been several references on this conference call regarding slowdowns in decision-making and just the overall pace just slowing down. Would you say that your plans for any M&A or deal considerations have also slowed down for 2020, pushing them back a little bit or even potentially pushing them out to 2021?

[Jeffrey Stoops, President, CEO & Director]

Well, I don't want to -- I don't want to over -- your comment, I think, overemphasizes the I hope I didn't convey that there's been too much of a slowdown because there really hasn't been so far. There's been little delays here and there. But there would be, I think, some potential -- much more larger difficulties in trying to execute an M&A deal in a new market in a geography where we've never been before. I mean some of these states are on lockdown and not allowing travelers to go into these countries. So when that -- I mean obviously, those things have to change before you would be able to even embark upon anything like that.

So I think there are just some practical limitations, which I don't think should surprise anybody who's been watching what's going on. That are going to be a little different this year until this situation all has a little bit more clarity, which will make the typical year of M&A a little more challenging for everybody than naught.

[Operator]

At this time, we've exhausted all questions in the queue. You may continue.

[Jeffrey Stoops, President, CEO & Director]

Well, I want to thank everyone for dialing in from probably their homes. And I do want to convey that our thoughts and our efforts are with the safety, not only here of our team members and our customers, but all of you out there on the call be safe, be well, and we look forward to speaking with you on our next call. Thank you very much.

[Operator]

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